Capital spending in the Canadian shale play and other non-oil sands projects is expected to hit $33 billion this year, outpacing oil sands capital spending. Encana photo.

Canadian shale could lure new investment

A growing number of Canadian producers and global oil majors are exploring opportunities in Canadian shale formations, which some say could rival prolific and profitable US shale fields.

According to the National Energy Board, the Duvernay and Montney formations, located in Alberta and British Columbia, hold marketable resources estimated at 500 trillion cubic feet of natural gas, 20 billion barrels of natural gas liquids and 4.5 billion barrels of oil.

“The Montney is thought to have about half the recoverable resources of the whole oil sands region, so it’s formidable,” Marty Proctor, chief executive of even Generations Energy, told Reuters.

Seven Generations and Encana Corp, two Calgary-based companies, are among the leading producers in the Montney and Duvernay.

Shale output in Canada could hit 420,000 b/d in the coming decade and the pace of output could grow and the estimated size of the resource cold expand as activity increases and knowledge of the fields grow, according to the Canadian Association of Petroleum Producers (CAPP).

Reuters reports Royal Dutch Shell and ConocoPhillips, both of whom sold oil sands assets last year, are developing Canadian shale assets.

Last November, Leif Sollid of Chevron said the Duvernay is one of the most promising shale opportunities in North America. ConocoPhillips sees the Montney delivering significant production and cash flow to the company, according to Al Hirshberg, executive vice president of production drilling and projects.

Shell spokesman Cameron Yost says the company will invest more money in 2018 in the Duvernay than any other shale field, with the exception of the Permian Basin in Texas.

“We may learn something in the Permian that becomes applicable in the Montney, and vice versa,” Yost told Reuters.

Margaret McCuaig-Boyd, Minister of Energy for the government of Alberta told Reuters “increasingly, we are going to see light light oil and liquids-rich natural gas forming a key part of Alberta’s energy future”.

In 2017, capital spending in the oil sands fell for a third straight year, while other oil and gas investment jumped by 40 per cent in 2016 to about $31 billion, according to CAPP.

This year, non-oil sands spending is set to grow to $33 billion, nearly three-times the amount slated for oil sands investment.

Companies favour shale oil and gas as hydraulic fracturing can offer quicker returns on smaller investments than the oil sands. As well, shale production is less carbon-intensive. Doug Suttles, Chief Executive at Encana told Reuters “all these things have a much lower carbon footprint than the average barrel refined today.”

Suttles adds “the last decade has been dominated by conversations about the oil sands, and people have maybe missed the opportunities” in shale fields.

While production companies face many challenges, including distance from key markets, they agree the high potential of Canadian shale in the Montney and Duvernay formations.

Reuters reports the Duvenay is on par with the Eagle Ford shale field in South Texas. Mike Johnson, technical leader of hydrocarbon resources at the NEB says the Montney has enormous gas resources and extremely thick rock formation which contains several different layers where oil and gas can be drilled.

Weak prices and oversupplied natural gas markets and concerns about limited capacity on pipelines are dampening enthusiasm for the projects. As well, proposed Canadian LNG export terminals on the West Coast have been stalled or canceled due to low commodity prices.

However, these obstacles have not stopped companies from staking claims in the region. Reuters reports that in 2017, Alberta oil and gas land sale prices hit levels not seen since 2014 on the rush to buy land in the Duvernay East Shale Basin.

“The potential is absolutely huge,” Mark Salkeld, president of the Petroleum Services Association of Canada told Reuters. “The only thing holding us back is access to market and the cost.”